Forex Major Currencies Outlook (Aug 30 – Sep 3)

USD

Second reading of Q2 GDP saw an upgrade to 6.6% from 6.5% as preliminary reported but expectations were 6.7% reading. Personal consumption was 11.9% vs 11.8% in the preliminary reading with business inventories and net exports contributing most to the upward revision by coming in at 9.3% vs 8% and -0.24pp vs -0.44 in preliminary reading respectively. PCE inflation data for July showed both headline number and core number continue to rise. Headline came in at 4.2% y/y while core touched 3.6% y/y. Inflation has risen every month of the year. Personal income showed a decent increase of 1.1% while personal spending rose 0.3% as was expected. 

St. Louis Fed President James Bullard stated that inflation is much higher than expected and expressed his doubts that inflation will moderate in 2022. According to him Fed should start tapering as soon as possible and finish with it by the end of Q1 2022. He added that "getting the taper done early gives The Fed options on raising rates." Raphael Bostic, Atlanta Fed president, expressed his belief that October would be the best time to start the taper. However, Fed Chairman Powell, took a more cautious approach, He stated that it "could" be appropriate to start taper by the end of the year, thus removing wind from the hawk's sails and pushing USD down. He is concerned about Delta variant and wishes to monitor virus related developments before deciding on the course of tapering. The rise in inflation has been characterized as "sharp" and policymakers “cannot take for granted that inflation due to transitory factors will fade”. Employment remains number one concern for the Fed as stated by the Chairman: “we have much ground to cover to reach maximum employment”. August NFP report will be of massive importance for the potential taper announcement in September which would then see taper begin in October. 

This week we will have ISM PMI data as well as NFP data on Friday. Headline number is expected to print around 800k with the unemployment rate dropping to 5.2%. Average hourly earnings are expected to stay the same and they will draw a lot of attention. If they show rise it may flare up talks about potential for the wage-pull inflation. 

Important news for USD: 

Wednesday:

• ISM Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate
• ISM Non-Manufacturing PMI 

EUR 

Preliminary PMI data for August showed small drops across sectors. Eurozone manufacturing came in at 61.5 vs 62.8 the previous month. Services printed 59.7, a tick down from 59.8 in July and composite was down to 59.5 from 60.2 in July. Manufacturing continues to be impacted by the semiconductor chip shortages coupled with supply disruptions as the output category dropped to the lowest level in six months. Readings also indicate that Europe is weathering the Delta storm much better than other countries. Additionally, elevated levels are indicating that Q3 growth will be strong. Preliminary consumer confidence in August slipped to -5.3 from -4.4 in July, however it is still at historically elevated levels indicating that consumers are going strong. In comparison, consumer confidence in February of 2020 was -6.6. 

Following the drop in preliminary PMI readings German Ifo for August also showed declines in business climate and expectations categories. They both came below the 100 level and printed 99.4 and 97.5 vs 100.7 and 101 in July respectively. The readings show difficulties posed by supply chain disruptions and rising input prices with potentially devastating impact of the virus in autumn. Ifo economist remarked that almost half of companies in manufacturing and retail want higher prices to cover rising costs. Current conditions, on the other hand, continued to improve and came in at 101.4 vs 100.4 the previous month, highest since May of 2019, indicating still prevailing optimism among businesses. 

This week we will have preliminary August inflation reading expected to show another rise. 

Important news for EUR: 

Tuesday:

• CPI 

GBP 

Preliminary data refraining to August PMI readings saw manufacturing slide down to 60.1 from 60.4 in July while services dropped heavily to 55.5 from 59.6 the previous month. This is the third consecutive month of falling readings and lowest numbers since March. Although the numbers are indicating a healthy economy Markit notes that “there are clear signs of the recovery losing momentum in the third quarter after a buoyant second quarter” adding that “rising virus case numbers are deterring many forms of spending, notably by consumers, and have hit growth via worsening staff and supply shortages.” 

AUD 

PBOC Governor Yang announced that the bank will offer additional support to the economy in the coming months. The economy has been hit hard by the floods and growing covid restrictions. The main goal will be to increase credit support to the real economy, particularly to the small and medium enterprises. The Chinese economy is fighting with slowdown so additional support should positively impact their growth and lead to increase in both internal and external demand. Industrial profits in July continued to decline as base effects move out of the equation and are substituted with higher input prices and lower demand. Readings showed 16.4% y/y vs 20% y/y in June and 57.3% YTD vs 66.9% YTD the previous month. The numbers are still healthy, but the trend is not. 

This week we will have Q2 GDP data from Australia and official PMI data for August from China. 

Important news for AUD: 

Tuesday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• Composite PMI (China)

Wednesday:

• GDP 

NZD 

Retail sales for Q2 continued the fashion of strong data coming in from New Zealand. They came at 3.3% q/q vs 2.5% q/q as expected with year-on-year figure coming in at whopping 33.3% due to the base effects. Finance Minister Robertson stated that economy has entered into a lockdown with a strong economic position. Every piece of economic data is corroborating his stance. RBNZ assistant governor Hawkesby stated that policy will not be tightly linked with developing covid situation adding that they were considering raising cash rate by 0.50%. 

CAD 

Canada warned that its canola and wheat (its major crops) are being hit hard by the drought which should lead to a lower output. Consequently, this will most likely lead to higher consumer prices, adding to the inflationary pressures. With oil rebounding and moving toward the $70 level, CAD has benefited and managed to recuperate some losses from the previous week. USDCAD has dropped around 200 pips. 

This week we will have Q2 GDP data. 

Important news for CAD: 

Tuesday:

• GDP 

JPY 

Preliminary PMI data for August showed manufacturing drop to 52.4 from 53 in July with output, new orders and new export orders categories all experiencing weaker growth. Services reading plunged to 43.5 from 47.4 the previous month due to the ongoing state of emergency and weakening demand. Output, new orders and new export orders categories all showed a stronger decline within a services sector. Employment component in both readings showed growth while input prices are pointing to a weaker inflation, thus Japan’s struggle with deflation continues. Composite reading came in at 45.9, down from 48.8 the previous month. 

CHF 

SNB total sight deposits for the week ending August 20 came in at CHF715bn vs CHF714.6bn the previous week, EURCHF is getting dangerously close to the 1.07 level but SNB seems to be satisfied with Swissy’s strength as deposits show negligible rise. 

This week we will have Q2 GDP as well as inflation and consumption data. 

Important news for CHF: 

Thursday:

• GDP
• CPI
• Retail Sales

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